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The Federal Reserve should launch an aggressive interest rate hike campaign with a cumulative 100 basis points in increases by July 1, said St. Louis Fed President James Bullard on Thursday.
Speaking to Bloomberg News after U.S. consumer price inflation data earlier Thursday, Bullard said he was already more hawkish than his colleagues but has now increased dramatically the amount of rate hikes the central bank should do.
To get the Fed’s policy rate up 100 basis points by July 1, one of the Fed’s policy moves would have to be more than a quarter-point, if the Fed moves only at policy meetings.
Bullard said his proposed path of rate hikes was not “shock and awe” but rather a sensible response to a surprise inflation shock that the U.S. economy got last year that it did not expect.
He said that in the past the Fed would have had a meeting after such a report and raised rates right away.
He said he said the Fed should consider such a strategy.
Read: Fed seen raising interest rates at every meeting until the fall
U.S. stocks
DJIA,
-1.45%
SPX,
-1.79%
hit the lows of the trading session after Bullard’s comments were reported. The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.051%
rose over 2%, the highest level since 2019.
In the wake of the CPI data, economists were debating whether the Fed would decide to raise rates by 50 basis points in March.
Investors are expecting a half-percentage point rate interest rate increase in March, according to CME Group data.
Gregory Daco, chief economist at EY-Parthenon, said he expected hawkish members of the Fed like Bullard to call for a half-a-percentage point hike in March, but said he didn’t think the “core” of the committee was willing to raise rates so high in the first move.
“From a broad perspective, if the Fed were to do a 50 basis point rate hike, the signal would be that they needed to jolt markets to essentially have them reprice the Fed tightening trajectory and you needed to jolt the economy because inflation is much more persistent than you believe and you needed a shock to have a dampening effect on the economy,” Daco said.
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